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3/06/2013

Norwegian leases A340-300 to bridge the B787 gap

Norwegian
will wet-lease two A340-300 from HiFly to bridge the gap until the B787-8
will arrive after the battery problem is solved. How will that impact their
operations? Interestingly, the two A340 are from a batch originally flown by
Singapore Airlines, then given back to Boeing in exchange for B777’s. Boeing sold them to
BBAM and they leased the aircraft to Emirates. The two A340-300 are now due to
arrive at HiFly. So in the end Boeing has to lease Airbus aircraft to airline
customers to make up the problems with the B787.

But what does that mean for Norwegian?

First, the A340-300 is considerably larger than the B787-8. The
B787 in the Norwegian configuration will get 291 seats. 32 seats in a 2-3-2
configuration and 46” pith and 259 seats in a 3-3-3 configuration and 31”
pitch. The A340-300 could offer an additional 45 seats in economy in a 2-4-2
configuration and actually wider seats.

But there comes of course a higher fuel burn with the
A340-300: using the full PIANO 4.1 version on my iMac, I get a fuelburn of 96,568lbs for the 3,187nm great circle
route from Oslo to New York.

On the other hand, a dry lease for a B787-8 is calculated at
approximately $1million per month.

Without having flown a mile, the A430-300 is “cheaper” by a
quarter million dollars per month. But for every passenger flown from Oslo to
JFK or vice versa, the A340-300 looses $24.3 against the B787-8. So how many
passengers are flown ina month? The
aircraft will fly once back and forth per day, so with the 90% load factor the
A340-300 would carry 30 x 2 x 302 passengers = 18,120 passengers per month. The
extra cost for fuel is 18,120 x $24.3 = $440,316. So after fuel costs the
A340-300 is still almost $310,000 cheaper. Maintenance costs will eat into
this, also higher landing fees, but in the end it could be cheaper for
Norwegian.

For Boeing, on the other hand, it could be expensive. ILFC
will probably demand at least the “profit
portion” (what stays at ILFC after what they pay for their financing the aircraft)
of the $1m lease rate it does not get from Norwegian monthly as long as the aircraft
are not delivered. Let’s say ILFC has a profit margin of 10% or $100k per month
(ALC reported pre-tax profit magi of 24% in 2011!). Now image Boeing has to pay
for every B787 not delivered $100k during the battery crisis $100k per month.
Also airlines with B787 already in the fleet will demand compensation. This
could end up with a big number…

Yes, I know. Currently they have a 12F/ 42C / 213Y configuration. But I expect that the first class will disappear for more economy seats. Maybe the C section will be "squeezed" in between two Y sections? We will see...

The ability to sell seats is more about demand than availability. It might be more appropriate to assume the same number of passengers on each flight rather than the same load factor. Having the bigger plane doesn't bring you more customers (and might lose you a few who wanted to fly the new plane before it became a PR problem. The numbers are probably still quite good for the low capital cost plane but the comparison might be more reasonable.

I think the fuel is only one issue. Norwegian probably trained pilots and cabin crew for the new aircraft. If wet-leased, crew is provided by HiFly. Leaves them with a considerable number of surplus pilots.